Real Money

Rite Aid Rises on Earnings

It's also helped by an upgrade to neutral at Merrill.

National drug-store chain Rite Aid ( RAD) reported an increase in fourth-quarter profit, beating analysts' consensus by a penny. The company also confirmed its full-year 2005 earnings guidance, which helped send its shares upward in Thursday trading.

The company earned $59.1 million, or 9 cents a share, in the quarter ended Feb. 28, compared with net income of $7 million, which came out to a loss of 2 cents a share after preferred dividends, in the year-earlier period. Analysts had been expecting earnings of 8 cents a share in the most recent quarter. Rite Aid said profit improved thanks to a 21.8% increase in adjusted earnings before interest depreciation, taxes and amortization as well as a $56.2 million reduction in store closing and impairment charges.

Adjusted EBITDA was $216.8 million, or 4.9% of revenue, compared with $178.1 million, or 4.3% of revenue, a year ago.

Revenue rose to $4.4 billion, from $4.1 billion a year ago with same-store sales up 6.4% in the quarter. Rite Aid said prescription sales were 62% of total sales, and third-party prescription sales were 93.4% of pharmacy sales.

Total same-store sales consisted of a 6.7% increase in the pharmacy business and a 6% increase in front-end results.

Rite Aid said it expects net income for fiscal 2005 between $112 million and $157 million with sales of $17.4 billion to $17.6 billion and same stores sales up 5.5% to 6.5% over fiscal 2004. Analysts are expecting the company to earn 26 cents a share in 2005.

Shares were lately adding 19 cents, or 3.5%, to $5.59, which is also in reaction to an upgrade from Merrill Lynch analyst Mark Husson. The analyst upped the shares to neutral from sell, saying "there is a bit more juice to Rite Aid's recovery than we had cautiously projected."

Husson, noted, however, that Rite Aid's pharmacy same-store sales are the weakest when compared with competitors CVS ( CVS) and Walgreen ( WAG). (Merrill Lynch has an investment banking relationship with Rite Aid.)

Rite Aid said that capital expenditures in 2005 are expected to be $300 million to $350 million, up from its previous guidance of $300 million to $325 million.